European Economy. Economic Papers. Germany's growth performance in the 1990's

Table 1.8: Contributions of Labour Input, Capital Input and TFP to Output Growth
D
(1)
F
I
UK
EUR
(2)
EU
(3)
US
JP
Labour Input (annual averages)
1971-2000
0.2
0.3
0.4
0.2
0.4
0.3
1.1
0.5
1991-2000
0.1
0.3
0.1
0.1
0.3
0.2
0.8
0.2
1991-1995
-0.2
-0.1
-0.4
-0.6
-0.2
-0.4
0.6
0.5
1996-2000
0.4
0.7
0.6
0.8
0.8
0.8
1.0
0.0
Capital Input (annual averages)
1971-2000
0.9
1.0
1.0
0.7
1.0
0.9
1.0
1.6
1991-2000
0.9
0.7
0.8
0.7
0.8
0.7
1.0
1.1
1991-1995
1.0
0.8
0.7
0.5
0.7
0.6
0.8
1.3
1996-2000
0.8
0.7
0.8
0.8
0.8
0.8
1.3
0.9
TFP Growth (annual averages)
1971-2000
1.2
1.2
1.1
1.4
1.3
1.3
1.1
1.3
1991-2000
0.9
0.7
0.7
1.5
0.9
1.1
1.5
0.1
1991-1995
1.3
0.4
1.0
1.9
0.7
1.1
1.1
-0.4
1996-2000
0.6
1.1
0.5
1.2
1.1
1.1
1.9
0.6
(1)
Data up to 1991 West Germany.
(2)
Euro-area excluding Germany, Greece, Ireland, Portugal and Spain
(3)
EU excluding Germany, Greece, Ireland, Portugal and Spain
Source : Commission services
The differences in the growth contribution from capital for the larger European countries are
not very significant, neither 
acro
ss countries nor 
over time
. More specifically, the results for
Germany do not differ much from those of other European countries. In general terms,
following the first oil price shock, the growth contribution from capital has declined for most
of the European countries. Germany eschewed this tendency in the first half of the 1990s due
to the huge amount of capital input necessary for the reconstruction of the New Länder, but
the second half of the decade bears again witness to this general trend. A noteworthy result of
Table 1.8 is the increase in the growth contribution of capital in the US in the second half of
the 1990s, a development which is not replicated in any of the large European countries.
A similar story holds for the contribution of total factor productivity (TFP) growth to output
growth. A slowdown of TFP growth can be observed over the past three decades for the large
European countries. Once again the experience of the US was different as TFP growth
accelerated over the past three decades, particularly in the second half of the 1990s. With the
exception of France, a rise in TFP growth in the second half of the 1990s did not occur in the
larger European countries. Clearly, the German development must be seen against the
background of the strong economic acceleration in the aftermath of re-unification, which was
accompanied by strong TFP growth. The fall of TFP growth in the second half of the 1990s
could, therefore, be seen as an adjustment to the longer-term trend. Moreover, with TFP
growth measured as the unexplained (Solow) residual after accounting for contributions from
labour and capital input, a downward revision in the contribution from labour input leads 
uno
actu
to an upward revision of TFP growth. Revising downward the contribution of labour
input by the order of magnitude indicated above would, in fact, result in TFP growth for the
1990s much above the EMU/EU average.

---

26
In conclusion, the results from this growth accounting exercise indicate that in comparison
with other European countries Germany reveals a particularly low growth contribution from
labour input. This largely confirm the results of previous sub-sections where the insufficient
capacity of generating employment was identified as a key problem of the German economy.
Conversely, the results presented here are difficult to reconcile with the notion of a lack of
capital formation as a major source of the German growth slowdown. Similarly, TFP growth
does not seem to be a decisive factor in the explanation of low output growth in Germany
since the mid-1990s.